Daijiworld Media Network – New Delhi
New Delhi, Jan 31: Cigarette prices are set to increase from February 1 as the Centre rolls out a new excise duty regime based on cigarette length, along with a health and national security cess on pan masala and tobacco products. The move marks the first major increase in cigarette taxation in nearly seven years and replaces the GST compensation cess framework that has been in place since the rollout of GST in July 2017.
From next month, cigarettes and tobacco products will attract additional excise duty and cess over and above the highest 40% GST slab, replacing the current structure of 28% GST plus compensation cess. The Central Excise Act has been amended to impose a per-stick excise duty on cigarettes, with rates varying depending on length.
Under the revised structure, short non-filter cigarettes up to 65 mm will attract an additional excise duty of around Rs 2.05 per stick, while short filter cigarettes of the same length will be taxed slightly higher at about Rs 2.10 per stick. Medium-length cigarettes in the 65–70 mm range will face an added duty of Rs 3.60 to Rs 4 per stick, while long and premium cigarettes measuring 70–75 mm will see an increase of around Rs 5.40 per stick. The highest levy of Rs 8.50 per stick has been reserved for cigarettes with unusual or non-standard designs, though officials clarified that most popular brands do not fall under this top slab.
The new rules also bring major changes for chewing tobacco, khaini, jarda and gutkha, with a fresh MRP-based valuation mechanism coming into force from February 1. Under this system, GST will be calculated based on the retail sale price printed on the pack instead of manufacturing cost. Pan masala manufacturers will be required to apply for fresh registration under the health and national security cess law, install CCTV cameras covering all packing machines, preserve footage for at least 24 months, and declare the number and capacity of machines to excise authorities. Manufacturers will be able to claim abatement in excise duty if a packing machine remains non-functional for at least 15 consecutive days.
The health and national security cess on pan masala will be levied based on manufacturing capacity, while keeping the overall tax burden at 88% including GST. Chewing tobacco and jarda scented tobacco will attract an excise duty of 82%, while gutkha will face a higher levy of 91%. Rating agency Crisil has projected that the domestic cigarette industry could see a 6–8% contraction in volumes in the next financial year following the tax hike.
The Centre has said excise duty collections from tobacco products will form part of the divisible pool of central taxes, with 41% shared with states as per Finance Commission recommendations. Proceeds from the pan masala cess will be channelled to states through health awareness and health-related programmes. Finance Minister Nirmala Sitharaman had earlier told Parliament that the cess is aimed at creating a dedicated and predictable resource stream for two key areas of national importance — health and national security.
The tax revision also comes as cigarette taxation in India had remained unchanged since 2017, a freeze seen as contrary to global public health practices. World Bank estimates indicate India’s total tax incidence on cigarettes is around 53% of the retail price, below the WHO-recommended benchmark of at least 75%. The new tax regime follows a GST Council decision in September 2025 to impose excise duty on tobacco products and a cess on pan masala once the GST compensation cess ends, with the compensation cess scheduled to cease after repayment of Rs 2.69 lakh crore in Covid-period loans by January 31.